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Terms announcement relating to the disposal of Bayport Financial Services 2010 and Zenthyme Investments
TRANSACTION CAPITAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 2002/031730/06)
ISIN: ZAE00167391
JSE share code: TCP
("Transaction Capital" or the "Company")
Bayport Management Limited
(Incorporated in Mauritius)
(Registration No. 54787 C1/GBL)
("BML")
TERMS ANNOUNCEMENT RELATING TO THE DISPOSAL OF BAYPORT FINANCIAL SERVICES 2010
PROPRIETARY LIMITED AND ZENTHYME INVESTMENTS PROPRIETARY LIMITED TO BAYPORT
MANAGEMENT LIMITED, A COMPANY INCORPORATED IN MAURITIUS AND LISTED ON THE STOCK
EXCHANGE OF MAURITIUS
1. INTRODUCTION
1.1. Transaction Capital shareholders are advised that
1.1.1. Transaction Capital currently owns 82.65% of the issued share capital of each
of Bayport Financial Services 2010 Proprietary Limited ("BFS") and Zenthyme
Investments Proprietary Limited ("Zenthyme");
1.1.2. Transaction Capital has entered into a sale of shares agreement (the "Minority
Buy-Out Agreement") with the Trustees of The Stuart Stone Family Trust,
Grant Kurland, Martin Freeman, Justin Chola and Suganthran Govender
(collectively the "Minorities"), BFS and Zenthyme in terms of which agreement
Transaction Capital will acquire from the Minorities all the issued shares in BFS
and Zenthyme held by the Minorities on the same terms and conditions
(including the price), mutatis mutandis, contained in the Agreement (defined in
paragraph 1.1.3 below) such that on the implementation of the Minority Buy-Out
Agreement, BFS and Zenthyme will become wholly owned subsidiaries of
Transaction Capital and on the basis that delivery of shares will occur before
the implementation of the Agreement (defined in paragraph 1.1.3 below) while
payment of ZAR279 728 040 (plus an amount equal to 17.35% of the notional
interest envisaged in paragraph 2.5) by Transaction Capital to the Minorities for
such shares will occur following receipt by Transaction Capital of the
consideration set out in paragraph 2.5 below;
1.1.3. contemporaneously with the signature of the Minority Buy-Out Agreement,
Transaction Capital has also entered into an agreement ("Agreement") with
BFS, Zenthyme and BML, pursuant to and in terms of which BFS and Zenthyme
will, subject to the fulfilment or waiver of the conditions precedent specified in
the Agreement ("Conditions Precedent"), and after implementation of the
Minority Buy-Out Agreement, become wholly owned subsidiaries of BML,
(collectively the "Proposed Transaction").
The Minority Buy-Out Agreement and the Agreement are conditional on one another and accordingly
indivisibly linked.
The salient features of the Proposed Transaction, including the material Conditions Precedent are
set out below.
2. SALIENT FEATURES OF THE PROPOSED TRANSACTION
2.1. Particulars of the Proposed Transaction
2.1.1. The subject matter of the Proposed Transaction is all the issued ordinary shares
in BFS and Zenthyme.
2.1.2. Upon implementation of the Proposed Transaction
2.1.3. BFS and Zenthyme will become wholly-owned subsidiaries of BML;
2.1.4. Transaction Capital will receive the consideration set out in paragraph 2.5 below
and
2.1.5. The Minorities will receive ZAR279 728 040 (plus an amount equal to 17.35% of
the notional interest envisaged in paragraph 2.5).
2.2. Rationale for the Proposed Transaction
2.2.1. The origin of Bayport was the establishment by Messrs Stuart Stone ("Stone")
and Grant Kurland ("Kurland") of a mass market unsecured credit provider in
2001.
2.2.2. Operating as BML, the founders expanded into 4 African countries and in 2005,
on expiry of their restraint from operating in the country, entered the South
African market and established BFS.
2.2.3. In 2010, consistent with its strategic objective to acquire and grow niched
financial services businesses, Transaction Capital acquired 82.65% of BFS for
an enterprise value of ZAR650 000 000, with the balance of the shareholding
remaining with the founders and management. At the time this presented the
potential for a later acquisition of BML by Transaction Capital and the re-
integration of the two businesses under the management of the founding
partners.
2.2.4. The following developments since then have persuaded Transaction Capital to
alter this view:
2.2.4.1. negative sentiment around the unsecured lending sector, has caused
the market to ignore the specific outperformance of BFS, which has
grown steadily, improving its differentiated strategy, executive calibre,
governance and quality of earnings under Transaction Capital's
stewardship and the leadership team assembled by Stone;
2.2.4.2. BML has expanded steadily into 6 African countries and Colombia,
while developing the management infrastructure required to manage
and control a global emerging market lender. This endeavour has
been supported by a diverse group of international debt capital
investors through BML's listed bond issuances on the Swedish Stock
Exchange, and by new equity from Investment AB Kinnevik, the
renowned Swedish emerging market investor, and from funds advised
by Helios Investment Partners, one of the largest pan-African private
equity investment firms which recently committed to a USD100 000
000 equity investment into BML. Together these two major investors
will own over 50% of BML;
2.2.4.3. BML has concluded that the growth and progress of the combined
entity will be facilitated by its independence, with a focussed
management team accountable directly to its international and local
equity and debt investors for performance.
2.2.5. The feasibility of Transaction Capital acquiring BML has been further
challenged by the following factors that would dilute Transaction Capital
shareholder value:
2.2.5.1. Relative Valuations: By virtue of its footprint and performance in high
growth African economies, BML has higher earnings and a higher
rating than BFS.
2.2.5.2. Cost of Equity: raising new equity at Transaction Capital's current PE
multiple would be dilutive.
2.2.5.3. Unsecured lending contribution: Given the recent disposal of Paycorp,
the acquisition of BML would increase Transaction Capital's
participation in unsecured lending to over 65% of headline earnings.
Notwithstanding the consequent international diversification,
Transaction Capital's mainly South African shareholders would view
this as a diminution of risk adjusted returns.
2.2.6. Following due consideration of the above issues, the board of Transaction
Capital elected to forego its initial ambition to acquire BML and to consider the
sale of BFS and Zenthyme to BML.
2.2.6.1. This decision is consistent with Transaction Capital's frequently
espoused view that it is obliged to consider disposing of a subsidiary if
the performance of that subsidiary can be enhanced by another
owner, as reflected in a fair price.
2.2.6.2. The enhancement of performance by BML will result from the
combined entity realising strategic, operational and financial synergies
as an independent global group, under the uninterrupted management
of Kurland and Stone as the chief executives of BML and BFS
respectively, while funding organic and acquisitive growth with the
support of local and international debt and equity investors, all well
established in emerging markets.
2.2.6.3. The Proposed Transaction has been concluded at an enterprise value
of approximately ZAR1 610 000 000, or ZAR1 330 000 000 for
Transaction Capital's 82.65% share of BFS and Zenthyme,
representing 1.5 times book value (based on the net asset value as at
31 March 2013) and a 7.15 PE ratio (based on headline earnings for
the rolling 12 month period ended 31 March 2013), both considered
acceptable by the Transaction Capital board.
2.3. Overview of the business of BFS and Zenthyme
The business conducted through BFS (and its subsidiaries) and Zenthyme includes the
provision of unsecured credit and related products, cellular handset and airtime subscription
agreements and related products, to historically under-served low to middle income
individuals in South Africa. The business provides clients with personalised and direct
access to credit, by originating retail loans through a wide distribution network of
approximately 2 211 mobile, commission earning independent agents; operating out of 56
branches and 33 kiosks at selected South African Post Office outlets nationwide and backed
by three call centres. BFS primarily funds itself via Bayport Securitisation (RF) Limited and
its JSE listed ZAR10 000 000 000 Asset Backed Note Programme.
On implementation of the Proposed Transaction, Mr David Woollam will be appointed non-
executive chairman of BFS.
2.4. Overview of the business of BML
BML is a leading provider of unsecured credit and financial solutions to the formally
employed mass markets in emerging markets in Africa (Zambia, Ghana, Uganda, Tanzania,
Botswana and Mozambique) and Latin America (Colombia). Today, BML services over 270
000 customers (total loan portfolio of approximately USD 400 million) through 289 branches,
with the support of 3 300 employees. BML has further developed a broad global debt and
equity investor base (refer 2.2.4.2 above) and wide relationships with multinational and
domestic banks and insurance and pension funds in its markets of operation and in
Scandinavia.
2.5. The consideration and application of the net consideration
2.5.1. The consideration to be received by Transaction Capital for the disposal of its
100% interest in BFS and Zenthyme (after implementation of the Minority Buy-
Out Agreement) amounts to ZAR1 612 265 361 plus an amount equal to
notional interest (calculated thereon from 1 January 2014 until the day
immediately preceding the date on which the Agreement is implemented at a
rate of 0.9%, calculated daily and compounded monthly in arrears) (the
"consideration") and will be settled in cash by BML on the implementation of
the Agreement. Two wholly-owned subsidiaries of Transaction Capital will retain
a claim on loan account against BFS amounting to ZAR215 000 000 in
aggregate, repayable on the second anniversary of the effective date of the
Proposed Transaction
2.5.2. The consideration less the amount payable to the Minorities under the Minority
Buy-Out Agreement will be applied for the purpose of delivering shareholder
value through strategic acquisitions and/or capital management initiatives.
2.6. Categorisation
The Proposed Transaction is categorised as a category 1 transaction for Transaction Capital
in terms of the Listings Requirements.
2.7. Effective date of the Proposed Transaction
The effective date of the Proposed Transaction is the last day of the month in which the last
of the Conditions Precedent (other than the material adverse change condition envisaged in
paragraph 2.10 below) is fulfilled or waived, as the case may be.
2.8. Related party transaction and Independent Professional Expert opinion
2.8.1. The Proposed Transaction is a related party transaction, as envisaged in the
JSE Limited ("JSE") Listings Requirements ("Listings Requirements").
2.8.2. The relevant related parties vis-à-vis Transaction Capital are
2.8.2.1. the Kimberly Investment Trust;
2.8.2.2. the Rutland Trust;
2.8.2.3. the Sugar Tube Trust;
2.8.2.4. the Stuart Stone Family Trust;
2.8.2.5. Justin Chola; and
2.8.2.6. Kurland.
(collectively the "Related Parties").
2.8.3. The Related Parties will not have a vote at the general meeting referred to in
paragraph 4 below.
2.8.4. The details of the Related Parties are as follows -
2.8.4.1. Messrs Jawno, Mendelowitz and Rossi are directors of Transaction
Capital and BFS. Messrs Jawno, Mendelowitz and Rossi are also
contingent discretionary beneficiaries of the Kimberly Investment
Trust, the Rutland Trust and the Sugar Tube Trust, respectively.
Each trust holds 14.11% of the issued ordinary shares in
Transaction Capital and are accordingly material shareholders of
Transaction Capital;
2.8.4.2. Mr Jawno is also a director of BML;
2.8.4.3. Messrs Jawno, Mendelowitz and Rossi are also contingent
beneficiaries of certain other trusts which hold an indirect interest in
BML. Accordingly, Messrs Jawno, Mendelowitz and Rossi also
have contingent indirect interests in BML;
2.8.4.4. Stone, who is a director of BFS and BML, is also a contingent
discretionary beneficiary of the Stuart Stone Family Trust, which
trust holds a 1.20% interest in Transaction Capital and has a
contingent indirect interest in BML. He is also a vendor in the
Minority Buy-Out Agreement:
2.8.4.5. Kurland, who is a director of BFS and BML, holds a 1.15% interest
in Transaction Capital and has a contingent indirect interest in BML.
He is also a vendor in the Minority Buy-Out Agreement; and
2.8.4.6. Mr Chola, who is a director of BFS and BML, holds a 0.04% interest
in Transaction Capital and is a shareholder in BML. He is also a
vendor in the Minority Buy-Out Agreement.
2.8.5. In terms of paragraph 10.4(f) of the Listing Requirements, the board of directors
of Transaction Capital (the "Board") must obtain a fairness opinion from an
independent professional expert. Accordingly, the Board has appointed Grant
Thornton Advisory Services Proprietary Limited as the independent professional
expert to provide an opinion on the fairness of the Proposed Transaction.
2.8.6. The above-mentioned fairness opinion will be included in the circular and notice
of general meeting referred to in paragraph 4 below.
2.9. Other significant terms of the Proposed Transaction
The Company has provided BML with warranties customary for a transaction of this nature,
subject to customary limitations as to the period during which claims may be brought and
customary thresholds for the capping of claims.
2.10. Conditions Precedent
The Proposed Transaction is subject, inter alia, to the fulfilment or waiver (where
appropriate), as the case may be, of the following material Conditions Precedent, namely -
2.10.1. BML concludes agreements to raise funds to enable it to discharge the
consideration to be paid by it under the Agreement and such agreements
become unconditional in all respects in accordance with their respective terms,
save for any condition relating to the Agreement becoming unconditional;
2.10.2. BFS obtains the prior written consent of at least 75% of the note holders of
Bayport Securitisation (RF) Limited for the change of shareholding in BFS
arising from the implementation of the Agreement and the Minority Buy-Out
Agreement;
2.10.3. to the extent required, the parties obtain all statutory and/or regulatory
approvals (or deemed approvals) or waivers, as the case may be, required for
implementation of the Proposed Transaction from, inter alios, the South African
competition authorities (as may be required or provided for in terms of the
Competition Act, 1998), the South African Reserve Bank, the JSE Limited
(including approval of the circular to the shareholders of Transaction Capital in
accordance with the JSE Listings Requirements) and the Takeover Regulation
Panel established in terms of section 196 of the Companies Act, 2008;
2.10.4. insofar as may be necessary, the board of directors and/or the shareholders of
each of BFS, Zenthyme and Transaction Capital pass such resolutions,
including, without limitation, such resolutions as may be required in terms of the
Listings Requirements and the Companies Act, 2008, to authorise and
implement the Proposed Transaction.
It is also a Condition Precedent that there will be no material adverse change as notified
either by Transaction Capital or BML (as the case may be) between the signature date of the
Agreement and three business days before the Effective Date.
In addition, if the Proposed Transaction is not implemented in accordance with the terms of
the Agreement by the later of 31 March 2014 and the final determination of any dispute as to
whether a material adverse change has occurred, then unless otherwise agreed by the
parties to the Agreement, the Agreement will terminate.
3. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED TRANSACTION
The unaudited pro forma financial effects of the Proposed Transaction set out below have been
prepared to assist Transaction Capital's shareholders in assessing the impact of the Proposed
Transaction on the Transaction Capital Group's historical diluted earnings per share ("EPS") and
diluted headline earnings per share ("HEPS"). The pro forma financial effects are the responsibility of
the directors of Transaction Capital and are provided for illustrative purposes only. The pro forma
financial effects have been prepared on the basis that the Proposed Transaction had been fully
implemented on 1 October 2012 for purposes of the Income Statement and at 31 March 2013 for
purposes of the Statement of Financial Position. It does not purport to be indicative of what the
consolidated financial results would have been had the Proposed Transaction been implemented on
a different date. The material assumptions are set out in the notes following the table below. Due to
their nature, the pro forma financial effects may not fairly present the financial position, changes in
equity, results of operations or cash flows of the Transaction Capital Group after the implementation
of the Proposed Transaction.
Before the Impact of the Impact of the Impact after Percentage
Proposed Proposed Proposed both the change
Transaction(1) Paycorp Transaction(3) Paycorp
Holdings (Pty) transaction
Ltd Transaction(2) and the
Proposed
Transaction
EPS (ZA cents)
- Diluted 39.9 70.5 78.9 189.3 374.4%
- Basic 39.9 70.5 78.9 189.3 374.4%
HEPS (ZA cents)
- Diluted 39.9 (2.2) (13.6) 24.1 (39.6%)
- Basic 39.9 (2.2) (13.6) 24.1 (39.6%)
Net asset value per
ordinary share (ZA
cents) 527.6 71.7 56.3 655.6 24.3%
Net tangible asset
value per ordinary
share (ZA cents) 362.9 131.1 127.7 621.7 71.3%
Weighted average
number of shares in
issue* (million)
- Diluted 583.80 583.8 583.8 583.8 -%
- Basic 583.80 583.8 583.8 583.8 -%
Headline earnings
(ZA Rm) 233 (13) (79) 141 (39.6%)
(1) The "Before the Proposed Transaction" financial information has been extracted, with the
exception of net tangible asset per share without adjustment, from the Transaction Capital Group's
published reviewed interim results for the six months ended 31 March 2013.
(2) The pro forma "Impact of the Proposed Paycorp Holdings (Pty) Ltd Transaction" financial
information comprises the financial information adjusted for the following principal assumptions:
- value of net assets that are the subject of the transaction: R170 million as at 31 March
2013
- profits attributable to the net assets that are the subject of the transaction: R28 million for
the 6 months ended 31 March 2013
(3) The pro forma "Impact of the Proposed Transaction" financial information comprises the financial
information adjusted for the following principal assumptions:
- value of net assets that are the subject of the transaction: R1 067 million as at 31 March
2013, Transaction Capital's share thereof being R882 million
- profits attributable to the net assets that are the subject of the transaction: R89 million for
the 6 months ended 31 March 2013
4. CIRCULAR AND NOTICE OF GENERAL MEETING
A circular giving Transaction Capital shareholders full details of the Proposed Transaction and
containing a notice convening a general meeting of Transaction Capital shareholders to approve the
resolutions required to authorise the Proposed Transaction and ancillary matters will be distributed to
Transaction Capital shareholders in due course.
Johannesburg
23 October 2013
Sponsor to Transaction Capital:
Deutsche Securities (SA) Proprietary Limited
Legal advisors to Transaction Capital:
ENS africa
Independent Professional Expert to board of directors of Transaction Capital:
Grant Thornton
Independent auditors and reporting accountant on the unaudited pro forma
financial information of Transaction Capital:
Deloitte & Touche
Tax advisors to Transaction Capital:
Werksmans Attorneys
Corporate advisors to BML
Hyde Park Capital
South African legal advisors to BML
Bowman Gilfillan
International legal advisors to BML
Berwin Leighton Paisner
Swedish debt advisors to BML
Gernandt and Danielsson
Date: 23/10/2013 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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